But the spotlight at the conference turned quickly from trade and development issues to the current military standoff between India and Pakistan.

The foreign ministers of both countries briefly shook hands, said that a dialogue between them was not on the cards, and traded accusations on the sidelines of the summit.

Indian Foreign Minister Yashwant Sinha told reporters infiltration of Muslim rebels from Pakistani territory into Indian Kashmir has declined, but has not ended.

Pakistan diplomat Inam ul-Haq said Islamabad is not sponsoring, encouraging or allowing any movement of the rebels into India. But he said it is impossible to completely seal the line of control that divides Kashmir between the two countries due to the mountainous terrain.

India and Pakistan have massed tens-of-thousands of troops on their common border since December last year, after India blamed several militant attacks on Pakistan-backed guerrillas. Tensions and fears of a war remain high as New Delhi says it will not recall its soldiers until infiltration of Muslim guerrillas ends completely.

Critics say the antagonism between the two biggest countries in the region is making the regional bloc ineffective. Among them is Jyotendra Nath Dixit, a former top Indian official and now a foreign policy analyst.

"Compared to other regional groupings SAARC, which is now 17 years old, has not taken off the ground despite all the potentialities," said Mr. Dixit. "Practically all SAARC meetings since December '85 inaugural meetings, have been influenced by the adversarial relationship between India and Pakistan."

Development experts and economists had hoped the regional grouping would help countries in combating common social and economic problems. But observers say the long-running conflict between India and Pakistan over Kashmir has become a stumbling block in reaching regional agreements such as reducing trade barriers and tariffs.